BHP boosts returns and flags shale exit

Prashant Mehra
(Australian Associated Press)

BHP Billiton has flagged an exit from its troubled US shale assets and bumped up returns to shareholders as stronger commodities prices helped it post a solid return to profitability.

BHP made a net profit of $US5.9 billion ($A7.4 billion) in the year to June 30, up from a heavy loss a year earlier, and trebled it final dividend from the previous year to 43 US cents a share.

Underlying profit in 2016/17 rose nearly five-fold to $US6.7 billion, though still missed analyst expectations of around $US7 billion.

The resources giant declared its US shale assets as “non-core” and said it is actively pursuing options to exit them, handing a partial victory to activist shareholders agitating for improved returns.

It also pushed back investment in a capital-intensive potash venture in Canada to beyond 2018.

Chief executive Andrew Mackenzie said the decision was in the making for a long time, but acknowledged there had been input from shareholders.

“We would like to get on with the exit from shale,” he told reporters.

“Our best option at the moment is trade sale but we will keep a number of other mechanisms for exit open, where perhaps the timing could be a little quicker but not quite as value-adding.”

He declined to put a timeframe on the divestment, but said plenty of people were interested in “taking a look” at the assets.

BHP has for months been under pressure from activist hedge funds such as Elliott Advisors and Tribeca to restructure its sprawling global operations in order to curb underperformance.

Elliott, which last week raised its interest in BHP to above five per cent, had called for the demerger of its petroleum business and share buybacks as a means of unlocking shareholder value.

BHP generated free cash flow of $US12.6 billion in 2016/17 – its second highest on record – boosted by sharply higher earnings in iron ore, petroleum, coal and copper.

The result was weighed down by an exceptional loss of $US842 million related to the fatal Samarco dam failure in Brazil, an extended strike at its jointly-owned Escondida mine and withholding tax paid in Chile.

The group cut net debt by nearly $US10 billion, and will boost capital expenditure to $US6.9 billion in 2017/18 as it ramps up investment in the Mad Dog Phase 2 oil project in the Gulf of Mexico and the Spence copper mine in Chile.

UBS analyst Glyn Lawcock said BHP’s headline profit missed expectations, but strong cash flow and the US shale exit counted favourably.

“The market (is) expected to like the strong cash flow and debt reduction, together with decision to exit US shale seen as a positive,” he said.

Mr Mackenzie expects a move in China towards larger, more efficient steel mills to keep iron ore and metallurgical coal prices elevated.

“Our long term outlook has not changed for most of our markets but we are probably more optimistic about the short-term than we would have been a few months back,” he said.

BHP joined rivals Rio Tinto and Fortescue in sharply lifting dividends, although Mr Mackenzie remained cautious on future returns.

BHP shares were up 32 cents, or 1.3 per cent, at $26.02 at 1540 AEST.


* Full year net profit of $US5.89b, vs $US6.39b loss

* Underlying profit of $US6.7b vs $US1.2b

* Revenue up 24pct to $US38.3b

* Final dividend up 29 US cents to 43 US cents, fully franked


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